"We have very little room to choose. I pledged to cut taxes and now I’m raising them. But the circumstances have changed and I have to adapt to them," he addded, according to Bloomberg.

The measures include a hike in valued added tax from 18 to 21 percent, a reduction in unemployment benefits and a reform of the public administration.

The move is an attempt by Madrid to reassure markets and bring its borrowing rates down to more sustainable levels.

It is also part of a quid pro quo deal with its eurozone partners, which have given it an extra year to bring to its deficit to below the three percent of GDP required by EU rules.

It is expected to reduce its budget to 6.3 percent this year, to 4.5 percent in 2013 and to 2.8 percent a year later.

"This is a challenging but achievable objective," said EU monetary affairs commissioner Olli Rehn said at the beginning of the week, while noting that Madrid will have to commit to the "rapid adoption of additional measures."

The deeper cuts raises the question of whether Spain will be pushed further into recession.

When asked about this directly after the Spanish announcement, Rehn's spokesperson said the commission would first have to analyse the proposals.

The new cuts have caused anger among many of Spain's citizens, with the country already suffering from a high unemployment rate, particularly among its youth.

On Wednesday, thousands of miners made their way to Madrid to protest the government. They were joined in the Spanish capital by anti-austerity demonstrators.

Madrid is also in the process of negotiating a deal for its banks, which may need up to €100 billion in outside help.

A political agreement for the terms of the capital injection was struck by Spain's euro partners on Monday and is expected to be formalised on 20 July.

While a bank stress test has to be completed in autumn before the final sums of money for Spain's banks are known, €30 billion will be available from the eurozone at the end of July.